My current profession is tech and I’ve worked for some great companies over the years.  One of those was Intel.  When you went to work at Intel in the mid ‘90’s they sent you through a HazMat (Hazardous Materials) training class.  The instructor led you through a little exercise at the start of the class that went something like this.

Instructor:  What’s more deadly, water or cyanide?

Students:  Cyanide!

Instructor:  Maybe.  How about this scenario - you have to swallow a micro-gram of cyanide or drink a gallon of water - which is more deadly?

Students:  (confused disagreement)

Instructor:  Neither, you would survive both.

Instructor:  What about drinking 2 gallons of water within a few minutes or taking 1mg of cyanide?

Students:  (tentative majority) Cyanide?

Instructor:  No, you’d survive both.

Instructor:  Now, what about 100mg of cyanide or drinking 4 gallons of water?

Students:  (majority) Cyanide.

Instructor:  The water would kill you without medical assistance.

The Lesson - In a given amount of time, with the right dose ANYTHING can kill you.  In other words, too much of a good thing is deadly.

Which is the point of this post and why I’m worried.  Mainly about the markets but also the United States in general.  We simply have too much debt.  The Federal Reserve is printing too much money. The government continues to spend like there will never be consequences to their actions.  We can argue about timing but not the eventual outcome - the US is being destroyed by its political system.

Right now the S&P 500 is sitting just below its highs for the year, up 15% YTD (including dividends, ~12.6% on a pure price basis).  But corporate earnings and revenue growth sucked in Q3.  Europe is in a recession and is kicking the fiscal can down the road furiously, in the process solving nothing.  Japan is, as John Mauldin pounds the table on, a ‘bug in search of a windshield’.  Corruption seems to be at an all time high in every country.  The US political system is so broken it turns off the vast majority of Americans who don’t bother to vote anymore.  And if you think those are big issues, it turns out we’re pretty lucky that the rest of the world is focused on Europe and, to a lesser extent, Japan because if they collectively decided to focus on the US then the reality that the US is actually quite broke might finally start to sink in.

And what is it that we, and perhaps more specifically I, have to look forward to?  Well, lets see.  I grew up not necessarily poor, but certainly not rich by any stretch of the imagination.  That meant I paid my way through tech school, then undergrad, then grad school.  I worked from the time I was old enough to paint and mow lawns all the way through every degree and to this day.  I have a positive net worth now and would be considered, if not the 1%, then certainly the top 5%.  And because I’ve been so ‘lucky’, I should be expected to ‘share’ more and more of this ‘lucky windfall’ with others.  Well, let me share something with you - there’s very little ‘luck’ involved in any form of success.  It boils down to dedication, hard work and a work ethic that makes you successful.  Luck generates lottery winners, not people that work and save for their net worth.

Obama is the worst sort of politician with his, “you didn’t build that” shit.  And Romney was a fucking nut case, war monger, Mormon.  Neither of these guys should have been running for President but those were the choices and now we are stuck with one.  Mish did an excellent blog post on Ron Paul’s farewell speech that everyone should read - like right now.  Go, read it, you can come back here after you’re done.

There was also this great chart from ZeroHedge the other day that no press outlet bothers covering:

What I really think is happening is everyone already knows its too late and the whole financial system the world is built on is going to blow sky high.  If that’s the case, then you delay the inevitable as long as possible.  It actually makes sense from a political perspective.  If you know you’re going to crash the plane and there’s no arguing about the outcome, its just human nature to delay the crash as long as you can.

On the positive side of things, I continue to short my way to on-par performance with the S&P 500 for the year.  I’m up just over 13% for the year and all of that was made purely shorting the S&P 500.

At some point, something is going to die from printing / creating all this money (e.g. debt) from thin air.  Either the USD will die, the market will die, the economy will die (in the form of massive inflation) or, and this is worst of all, confidence in the entire system that has been engineered by the unholy trinity of big government, big finance and the Federal Reserve, will collapse.  People will stop spending on discretionary shit they don’t need.  They will save more, likely a lot more.  And since 70% of US GDP is consumer spending it will be game over until the giant ‘flush’ cleans out the current system and we reinvent things again.

All of the above sounds so negative, and it is going to be painful.  But long term I’m still fundamentally an optimist.  The technology humans create will most likely save us from ourselves, and I’m still betting it will.  I just hope we can get through whats to come quickly so we can get to better times.

Time to step it up a notch as things have been slowing down a bit around here the last few weeks.  So lets ‘resurrect’ Godsmack and their song Awake from 2000.  A factoid I didn’t know about these guys is that they hold the record (at 20) for the most top ten ‘Rock Radio Hits’.  I honestly would have never guessed that.

Don’t listen to the below if you are thinking of turning out the lights and listening to something soothing before bed because this song is the polar opposite - hence the name!

Here’s an interesting singer / songwriter - Paolo Nutini.  I couldn’t find a better version of this song online, but its good enough to get a sense for his talent.  Very good, mellow song just ahead of Thanksgiving.  Enjoy this Scottish musician’s ballad, ‘Last Request’.

Seeing Ray Kurzweil give a talk on his new book in Palo Alto. One of the best big thinkers alive today.

Second only to Linkin Park in my MP3 collection is Green Day.  I’ve always liked these guys and their latest trio of albums is quite good (well, at least the first two I’ve heard so far - Uno & Duo).

This song is from Duo and is really catchy.  I like the FX with the guy’s heart running around outside his body like a stick figure too.  

These guys are getting older but aren’t old yet!  Enjoy ‘Stray Heart’:

This week we have a little edge to the music since we’re stuck with Obama for another 4 years (see, I told you).  This one is from Tommy Fields and borrows the chorus from a song of his called Wildfire in the Streets.  Apparently its from the Locked Down soundtrack, but I heard it at the end of a Christian Slater movie I watched last weekend.  I have no idea who’s doing the rap part of the song, but its well done.  This sound sort of reminds me of Linkin Park a bit, probably my favorite all time band based on the sheer number of MP3s I own by them.

Without further commentary….

Of course they are crude today, but 3D printers are going to shake things up beyond a doubt.  MakerBot and similar companies are working on cheap, commercial versions that everyone can use.  The guys below at EADS are using much more sophisticated design tools and printers, but they were able to create an ENTIRE BICYCLE with the technology.  This is just remarkable and is a good indication of what you’ll be able to do within a decade with $5 worth of plastic powder. 

Couple things to note.  First. there are some metal parts in the clip that I’m sure they also ‘printed’ from metal powder.  Second, you won’t believe how they come up with the bearings!

Might be time to short unsophisticated Chinese factories…

It has been a while since I’ve done a trading update, but I’m flying home to Austin on Friday night so it seems like a good use of time.

As per usual, lets cover my benchmark - the S&P 500.  YTD the S&P 500 is up 12.27% on a price basis, 14.26% on a total return basis factoring in dividends.  So far this year things are going great for the index.  On my front I’m up 11.2% for the year so slightly under performing the index.  However, I’ll point out that I only trade the S&P 500 futures so I’m able to make this return with no direct exposure to ‘fruit stocks’ (cough apple cough) and the vast majority of the time (81% of the time to be exact) I am trading from the short side (e.g. selling as an opening position and buying to close the position) so I have practically zero correlation to the market from a bias perspective.  Here’s the equity curve for the year to date:

You’ll notice that around trade 200 - 400 there was a pretty significant draw down.  This occurred when I, foolishly, changed a couple things in the way I trade.  First I stepped up my size by 10X (e.g. go big or go home).  If anyone tells you seeing an extra zero on your position won’t effect you punch them in the head.  I can tell you with no hesitation that the mental adjustment is real and takes a little time.  The second thing I did was try to make myself trade more from the long side.  The best metaphor I can give you is like batting in baseball.  You favor a ‘side’ and that is the way you hit the ball.  Yes, your brain knows all the physics involved, has all the hand-eye coordination down, etc., but very, very few people can just walk up to the plate and decide to hit from the opposite side - it is a failing of the human mind / body connection.  The same thing goes for the way I’ve built my trading experience.  At some point I decided to focus on the short side and I stopped worrying about the long side.  It made a big difference for me to develop that specialization but it has almost crippled me when it comes to trading on the long side.  At some point I will get back around to working on the long side but, for the rest of this year its all about beating the index.  Now lets talk about the market.

Here was the closing numbers today from a headline perspective after both Amazon and Apple ‘disappointed’ Thursday night:

Pretty amazing performance if you ask me.  Last night before I went to bed the ES was down 11+ handles and looking like it was about to die.  This morning it was like the market forgot all about Amazon & Apple and opened without much of any gap.  Amazing performance.  But under the covers the A/D (advance / decline) and Up Volume / Down Volume are painting a slightly different picture:

What you see in the chart above is that both the declining volume led advancing volume and there were more declining stocks then advancing stocks (-502).  Granted this is the NYSE, but this type of divergence is unusual.

So, what does it mean?  Well you have Tom DeMark calling for new highs, not to mention the election is holding back all sorts of ‘things’ I’m sure.  You know damn well that the Obama administration has told every country, corporation, etc., not to rock the boat (e.g. announce funding issues, layoffs, etc.) before he’s reelected if they want to be looked upon favorably post-election by the Obama administration (sorry folks, he’s going to win a second term and its going to suck).  So, between the Fed’s dumping $40B+ a month into the market and everyone on their best behavior until after the election, I think there’s a lot of pressure under the market to stay green.  That’s my thesis at least.

As for my trading, I don’t really care as I will keep working that equity curve up and to the right.

Wes Hutchinson is not known to most of you, but that is ashamed.  I can’t even remember where or when I heard the song below the first time, but it is good - radio quality good in my opinion.

Years ago I wrote to him to buy his CD and he sent me back a burned copy of it in a hand addressed, padded mailer.  I was surprised, but I’ve kept both to this day.  The music industry is so strange sometimes.  Wes has a great voice and good musical talent, and yet has never really ‘broken through’.  I don’t quite understand it, but I’ll leave you with the only version of the ‘Things We Need The Most’ on YouTube.  Its been mixed over some ‘House’ episode, but try to ignore that and focus on the song - its well done in my opinion.  No embed this time, just a link to the clip on YouTube.  Enjoy.

Here’s a great tune that I haven’t heard in a while.  Tonight at the gym I decided not to play the good old ‘Gym’ playlist and just let all the MP3s into the line-up so a lot of songs I don’t listen to often started to roll by.  When this Brandi Carlile song came on I remembered just how much I liked it.  Its called ‘The Story’ and in it she uses her tough, raspy voice to great effect.  The Wikipedia write up categorizes her as an ‘alternative country’ and ‘folk rock’ singer which actually makes sense after you listen to this. Also, the song’s sound sort of reminds me of the 4 Non Blonds but we’ll cover them at some later date.  So, without further commentary, have a look / listen to The Story: